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Bernanke Fights Ron Paul In Congress: Gold Isn't Money

Chairman Ben Bernanke faced-off with Fed-hating Representative Ron Paul during his monetary policy report to Congress on Wednesday. The head of the Fed was forced to respond to accusations of enriching already rich corporations while failing to help Main Street, while he was pushed on his views on gold. When asked whether gold is money, Bernanke flatly responded “No.” (See video below).

While most of Bernanke’s reports to Congress serve politicians to pursue their own agendas by gearing the Chairman towards their issues, with Republican Rep. Bacchus talking of the unsustainability of Medicaid and Rep. Frank (D, Mass.) asking about the need to raise the debt limit without cutting spending, it was a stand-off between Bernanke and Ron Paul that took all the attention. (Read Apocalyptic Bernanke: Raise The Debt Ceiling Or Else).

Rep. Ron Paul, Republican for Texas, asked Bernanke why a capital injection of more than $5 trillion “hasn’t done much” to help the consumer, who makes up about two-thirds of GDP in the U.S., and prop up the economy, while it helped boost corporate profits. “You could’ve given $17,000 to each citizen,” Ron Paul claimed.

Bernanke, clearly on the defensive, told Rep. Ron Paul that his institution hadn’t spent a single dollar, rather, the Fed has been a “profit center” according to the Chairman, returning profits to the federal government. As Bernanke began to sermon Rep. Paul on the history of the Fed (“we are here to provide liquidity [in abnormal situations],” the Chairman said), he was interrupted.

“When you wake up in the morning, do you think about the price of gold,” Rep. Paul asked. After pausing for a second, Bernanke responded, clearly uncomfortable. that he paid much attention to the price of gold, only to be interrupted once again.

“Gold’s at about $1,580 [an ounce] this morning, what do you think of the price of gold?” asked Rep. Paul. A stern-faced Bernanke responded people bought it for protection and was once again cut-off, with Ron Paul once again on the offensive.

After Paul interrupted him to note the long history of gold being used as money, Bernanke continued,”It’s an asset. Would you say Treasury bills are money? I don’t think they’re money either but they’re a financial asset.”

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Do you believe an electronic transaction to be less “fiat” than one involving paper “money”? Nothing especially tangible is involved in either. The only real difference is that one is trackable and auditable, and the other is less so.

the sticking point isn’t “electronic currency vs paper money”. It’s “is the money limited by a tangible amount of gold in a vault, which it is intrinsically exchangable for” ? Electronic currency can be just a more convenient form of paper money, which can represent a tangible amount of gold or…absolutely nothing.

I agree that commodoties are the new defacto currency. This is becasue they are real assets that are truly exchangeable for some other commodity. Even equities are also a form of commodity. My question on using gold as the standard is this theoretical question: “What would happen if a government discovered a huge gold mine containing say half of the worlds known gold supply. If some other government is holding gold as their standard, would their currency suddenly be reduced?

You have to love Ron Paul. He is the only one who asks the tough questions and has always been critical of the FED, as we all should. The FED creates fiat currency and the charges the US interest on every dollar created. We need to go back to constitutional money, like Andrew Jackson and Abraham Lincoln fought for.

All the answers are in your post. You just have to look at them from a different perspective.

“there is not a single government in the world which uses a gold standard and it has been decades since there has been one.”

Of course there isn’t. Governments wield supreme power through force. Governments, like people, act in their own self-interest. Saddling itself with the gold standard would limit its power as the philosopher’s stone still has not been discovered; gold cannot be created by fiat.

“The vast majority of financial transaction are not even conducted using paper “fiat” money, it is all electronic or bank drafts. The larger the transaction, the less likely it is to involve actual physical money.”

a fiat dollar, whether on physical paper or digital is still a fiat dollar. There is very little printed money compared to the entire supply. While I agree that large transactions in physical gold would be difficult, you are thinking in terms of how “you” would be affected…self-interest.

In my own self-interest, I’d be willing to trade off the ease of transactions for the maintenance of purchasing power and the new found restraint on government, because, also in my own self-interest, I’d enjoy this new expansion of personal liberty.

A gold standard simply means that currency is backed with physical gold. Basically $X = X-amount gold. This ensures the value of currency is linked to gold. It does NOT mean you have to carry gold/silver coinage in your pockets or a money purse — though you could. People who say it would be “heavy” or “inconvenient” to carry gold obviously have no clue what gold is worth. Unless you routinely carry around $250k in cash, you’ll never carry enough gold for it to weight you down, lol. But the important thing for a gold standard is simply linking currency to gold — this is how things are supposed to work. Money is a medium of intrinsic, immutable value (e.g., gold and silver — forms of commodity money). Currency is something (e.g., govt. issued notes/coinage) which REPRESENT money. Currency is not money; the dollar is not money. Money can be made into currency, however, such as govt. minted gold/silver coins. The purpose of currency is to be convenient (in the case of notes) and provide certainty in the quality/purity of gold/silver coin. Unfortunately, this was all thrown away decades ago and our money represents nothing — only an ignorant “good faith” toward the government. This is precisely why we’re in trouble and more danger looms on the horizon.

A gold standard requires a government to live within its means. Since you must actually HAVE money to spend money, you can’t run a nation’s finances in dishonest ways. Since our gold standard was stolen from us by the Keynesians, government doesn’t have to be accountable or responsible, and they can lay all the burden of their unbridled spending on us. They print more and more money (figure of speech — it’s mostly done electronically now) and cause inflation…it strips the value out of your hard-earned dollars so government can spend. In that way, it is essentially an unseen tax. Having this total power over our economic system, politicians have gotten carried away. They promise outrageous amounts of benefits and social welfare to voters and fund it through the Fed. This is why we have such terrible currency devaluation and a huge deficit. It’s time to put this to an end…

The way to return to a sound monetary system is to lift the unconstitutional laws which force us to use the fiat dollar. When we are given the option to use gold/silver coins or backed notes, the dollar will lose out to the competition. What Americans would want to hold a rapidly falling currency? Beats me. Slowly demand for the dollar will fall and its value will fall as the country transitions to real money and hard currency. Businesses will get tired of dealing with the dodgy fiat dollar and it will become obsolete — eventually being totally replaced by a hard dollar.

The first thing to notice is the concept of having a gold standard is the opposite of the idea of letting the free market determine the value of money. Either you set the value of dollars in fractions of an ounce of gold or you set up a bidding system for dollars. You can’t have it both ways unless you try to set the price of gold artificially by manipulating the bidding system. The bank of england proved once that if you try to do that, you could just be making the next George Soros rich.

The second thing to note is that the GDP of a country depends on the cross product of peoples wealth and their need. In an extreme example, if all the wealth is owned by a group of people with zero need, then you have Zero Gross Domestic Spending. You would have a big Gross Domestic Investment component, but that is just another term for asset bubble.

On the other hand, if you can keep production reasonably efficient while also keeping reward for that production fair and broad-based, then you can have solid economic growth. The key is, you have to make sure that people who produce are rewarded and are given the ability to consume.

This is difficult if producers (by this I mean the people who do the work, not the people with paper ownership) have too much leverage, because it can cause destructive inflation as we have seen in socialist countries, or if the owners have too much leverage, as we see in most third world countries and as we saw in the US during the great depression when it ran the risk of becoming a third world country.

You can tell whether destructive inflation or deflation is a bigger risk based on several aspects of your economy. If price controls are pervasive, productivity is shrinking, but wages are increasing, then you need free market reform. If productivity has gone up every year, like it has in the US since 1980, if real wages have gone down every year, if it has been getting harder and harder to unionize at the bottom, but easier and easier to form trusts at the top, if the distribution of wealth has become more and more lopsided? Then you need to move back to the center quickly because it is much harder to level the playing field at a level where three people can get together to perform collective bargaining instead of 10,000.

“What would happen if a government discovered a huge gold mine containing say half of the worlds known gold supply. If some other government is holding gold as their standard, would their currency suddenly be reduced?

Greetings Seismos123,

There will always be that chance, and many countries would even play poker face lying to drop the gold price but it still will have a stable value being that today we have huge countries like China & India who keep buying, in fact china keeps buying to get to a goal of gold standard.

You can credit Ron Paul for rewriting the definition of fiat. If government decrees gold to be legal tender, gold would be fiat and have artificial value by government decree.

It is like telling a bunch of builders that we can’t build today because we ran out of inches. Money is an abstract idea. Gold is a commodity. To confuse the two is a corruption of the free market.

40% of the world’s gold supply is already used for investment. Not sure why libertarians complain all the time. Gold is valued right now in the free market and can be bought and sold in the free market right now. They seem like a bunch of hypocrites wanting the government to corrupt the free market in gold.